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Lessons Learned From the Proactiv Class-Action Settlement

15 Aug, 2017 By: Linda A. Goldstein


In May, a California judge granted final approval of a settlement of a class action lawsuit filed against Guthy-Renker alleging that the company failed to adequately disclose the terms of Proactiv’s auto-renewal subscription and did not obtain consumers’ affirmative consent to the transactions. The complaint was originally filed in 2013 and a preliminary settlement was reached last February.

Under the terms of the settlement, Guthy-Renker has agreed to pay up to $15.2 million in a combination of cash payments and products to members of the class. Class members have the option of receiving a cash payment or free skin care products worth at least $75. The amount of each cash payment, which will range from $20-75, will depend on the number of class members who ultimately choose the cash option. The class consists of all California consumers who purchased Proactiv between January 2009 and July 2014 and were charged beyond the initial purchase. Disbursement of funds and products to the class members began in July.

The settlement is noteworthy for several reasons. First, the case underscores the harsh reality that automatic renewal and other negative option programs remain an attractive target for the class action bar. While the Federal Trade Commission (FTC) and other federal and state regulators continue to aggressively pursue enforcement actions against marketers who fail to adequately disclose negative option offer terms and/or obtain the consumer’s express affirmative consent, the class action bar continues to pursue these cases with a vengeance.

Second, while direct response marketers are hyper-focused on complying with the Restore Online Shoppers’ Confidence Act (ROSCA), given the FTC’s aggressive enforcement of that statute, this case is an important reminder that marketers must also consider the myriad of state laws governing negative option marketing – those whose requirements often differ from and/or are more stringent than those contained in ROSCA. In other words, marketers cannot assume that compliance with ROSCA will shield them from liability.

California’s automatic renewal law, for example, which formed the basis for the Proactiv class action, has several requirements that are more stringent than ROSCA. For example, while ROSCA requires clear and conspicuous disclosure of the material terms and conditions of negative option offers, ROSCA does not specifically define what constitutes clear and conspicuous disclosure. In contrast, California’s automatic renewal statute sets forth very specific standards for clear and conspicuous disclosure, including: that the disclosure either be in larger type than the surrounding text; in contrasting type font or color; or set off in some fashion from the remaining text, such as being included in a box.

California also requires that an order acknowledgement containing the automatic renewal terms, including cancellation instructions, be sent within 10 days following the transaction. As reported in a previous article, these more specific California requirements have also given rise to numerous actions by district attorneys in California who have formed a negative option task force specifically designed to enforce these requirements. Marketers should note that Oregon has a similar statute, while other states have specific automatic renewal notice requirements for contracts in excess of one year. Marketers should include review of these statutes as part of any negative option compliance program.

Third – and perhaps most importantly – the injunctive provisions of the Proactiv settlement set forth specific requirements as to where and how Guthy-Renker must disclose its automatic renewal terms in the future and obtain the consumer’s affirmative consent to the transaction. The settlement agreement incorporates the requirements of California’s automatic renewal statute, and it further requires that the terms and conditions page of any Guthy-Renker website that sells products under continuous or automatic renewal terms set forth the full terms of the automatic renewal billing and cancellation policies.

With respect to obtaining consumer consent, consistent with recent FTC consent orders, the settlement agreement requires a check box with a statement acknowledging consent immediately adjacent to the check box. The settlement agreement recommends the following or substantially similar language to evidence consent:

“By checking this box, you are electronically signing your order, agreeing to the terms above and to our general terms and conditions, including our auto-renewal billing program if applicable, and authorizing us to charge continuous automatic payments to the credit card you have provided.”

While, of course, other marketers are not bound by the terms of this settlement, they provide yet further guidance on how the basic requirements of notice and consent are likely to be interpreted by the class action bar and the regulatory community. The concept of a check box with immediately adjacent confirming language has become almost a standard provision in FTC ROSCA consent orders.

While marketers should, of course, ensure that their subscription programs comply with all federal and state automatic renewal laws, it is likely that California will remain a hotbed of activity. Legislation has been introduced in California that would impose even stricter notice requirements on automatic renewal programs. We will continue to report on those developments as they occur. In the interim, while automatic renewal programs continue to increase in use and popularity, it is unlikely that we will see any reduction in scrutiny any time soon.

Linda A. Goldstein is a New York-based partner and leader of the Advertising, Marketing, and Media Practice at BakerHostetler. She can be reached via email at lgoldstein@bakerlaw.com.


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